Securing the value of your business by protecting your IP

It is important to remember that the value of your business is not determined by the years you’ve worked or how much you’ve sacrificed. Unfortunately, business is not about fairness. It is about leverage, profitability, enforceable rights, and controlling access to things of value.

Disappointing valuations

Business owners often don’t have the time to consciously think about what it is that governs the value of their business – aside from profitability, and perhaps trade secrets. Typically, this is because they have their nose firmly to the grindstone keeping it all running. So when it comes to selling their business, this tends to result in:

(1) A painful and messy due diligence process;

(2) A lower than expected valuation;

(3) The buyer requiring the seller to stay on in the business for a protracted period.

The source of the problem

Remember that the business is the network of systems (made up of processes, information, assets, legal rights, employees etc etc) that convert money and information into profit. You must be able to separate these systems from yourself, package them, and sell the right to use them to another party.

With this in mind, the above issues tend to derive from two main problems:

(1) The business owner has not fully externalised the business systems by establishing processes, training and delegating to employees, and documenting their knowledge. Instead, they are the critical element that makes the whole system work.

The purchaser will have to discount from the purchase price the cost of hiring and training employees to perform the roles of the business owner, plus the cost of keeping the former owner on for a protracted period to ensure that all the know-how is transferred.

(2) The business owner has not ensured along the way that the company actually owns, or has the enforceable right to use, all the IP upon which the business relies to operate. For example, contractors will have been used from time to time to help build the business systems (e.g. website, modified or custom IT systems, sales materials, and other documents) but ownership of the IP hasn’t been assigned in writing.

The purchaser will have to walk away, or discount the cost of either clarifying the ownership of these systems or building its own replacement systems.

Addressing these issues will increase the value of your business and finally allow you to take a holiday; not to mention that if the business systems can operate without the owner’s ever-present attention it can scale and grow, and even expand into new and interesting areas.

It is best to deal with these issues before you start negotiating with buyers as it will remove leverage that they can later use to keep changing the deal on you – something that you will be particularly vulnerable to if you agree to negotiate exclusively with one particular purchaser.

Optimising and growing the value of your business 

Separating the business systems from yourself is a matter of wearing the upfront cost in time to delegate, train, and document, in order to reap the long term benefits to your business’ growth and value. As this means sharing confidential information and know-how with employees and contractors, it will place increased emphasis on your intellectual property arrangements in order to protect the value of your business as you grow.

For starters, you will need to address:

  • Ensuring all employment and contractor agreements are in writing, and include clauses addressing:
    • Confidential information;
    • Assignment of IP;
    • IP moral rights;
    • Restraint of trade (for key employees).
  • Reviewing existing IP in your business and shoring up your rights to use it:
    • Getting previous contractors to assign the IP to you in writing;
    • For any licensed third-party IT systems,
      • Clarifying who owns the IP in any modifications you’ve made;
      • Confirming what arrangements are in place should the third-party provider cease to operate (e.g. escrow arrangements and who would have the ability to keep the service running);
      • Clarifying your alternatives should your ability to continue using the third-party systems be affected;
    • Registering business names and trademarks;
    • Ensuring the domain names are registered to the company;
  • Protecting your IP:
    • Consistently enforcing your IP rights against infringers (e.g. other businesses or individuals who are using your copyrighted works without payment or permission, or other parties using deceptively similar branding to market their products and services);
    • Clearly marking any confidential materials used in the course of your business as ‘confidential’ so that everyone involved is conscious of their obligations;
    • Having standardised ready-to-use agreements that are easily adaptable, such as:
      • Employment agreements;
      • Non-disclosure agreements;
      • Assignment of IP agreements;
    • Consider whether any new products under development should be patented.
  • Negotiating an affordable standing arrangement for legal advice and services, to:
    • Resolve disputes with IP infringers and debters early (ongoing disputes are expensive and seriously undermine your valuation);
    • Keep your business’ legal arrangements current, and allow you to take advantage of changes in the law;
    • Ensure that your agreements actually secure the benefits that make them worth signing;
    • Maximise the strength of your position before entering negotiations, and provide tactical advice throughout.

It is common for business owners to view lawyers as a cost, and some lawyers have not done much to rebut this opinion. However, partnering with the right lawyer will maximise the value of your business, reduce the stress and uncertainty involved in running it, and provide you with a trusted adviser who will fight your battles and protect your interests.

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See also:

Lawyers, how to choose them and how to use them to save you money

Employee or Contractor – What’s in a Name?

Fair Dealing – Getting Paid vs. Getting Played

Lessons for Millennials Entering the Engineering Industry

With ever increasing competition, it is getting harder and harder for young professionals to get their start in the industry. Just the process of landing that first job can be a soul-destroying experience – especially if you are expecting to land that dream job straight out of university.

A great starting point, for students to get some perspective is to seek out industry leaders for a few minutes of their time. You’ll find that many of those whose careers you admire did not envision themselves ending up where they did. For most, their success has come from simply, at each stage, making the best choices they could with the opportunities available to them at the time; mixing courage with pragmatism.

You should therefore aim to keep an open mind, work hard, and look for opportunities to adapt your skillset and career in the direction of your strengths. Along the way the following pointers should serve you well:

Start out in a small engineering business

Most importantly, if you can, don’t start your career in a large firm. You will be a small cog in a big machine, responsible for a small sliver of the projects you work on, and probably having zero involvement with the customers.

When you are fresh out of university your knowledge is fresh and you are used to being pushed to the limit of your abilities (and your responsibilities at home will generally be minimal). Your focus needs to be on skill acquisition, not money, this is the time when you need to be thrown into the deep end and a keep your learning curve near vertical.

In a small business they will often be short-staffed and you will quickly have responsibility for a substantial part of the projects that you work on. You will have to learn fast how to manage a project throughout its life-cycle and how to communicate with customers. Because of the small number of staff, you will get the opportunity to do advanced tasks years before your colleagues in larger firms.

After a number years of running this gauntlet of anxiety, self-doubt, and many long hours of unpaid overtime, you will emerge with a very bankable skillset.

As an aside, don’t try to progress into management too quickly. Nail your skills first. You can’t manage what you don’t understand, and real understanding requires grinding long hours of hands-on experience.

Find opportunities to regularly apply your engineering knowledge to real world situations

Theoretical knowledge that has not been refined through repeated practical experience is unreliable, and apt to produce odd results (e.g. just because your concept design works in an FEA simulation doesn’t mean that a welder can make it).

Engaging in projects throughout your degree:

(1) Will make your knowledge more valuable to an employer,

(2) Demonstrate to an employer that you will continue to pursue mastery of your skills after they employ you (meaning reduced training costs, and rapid appreciation in the value of your skills),

(3) Indicates an ability to collaborate effectively as a team with other professionals,

(4) May provide opportunity to demonstrate entrepreneurial talents (indicating potential as a ‘rain-maker’ for the firm), and

(5) Will help you to figure out where you fit in your industry (So that you can focus your energies on where your natural talents allow you to deliver the most value).

Such opportunities can be gained with local engineering firms. Don’t hesitate to contact these firms for work experience and employment opportunities. This will give you a serous edge upon graduation and allow you to hit the ground running. Don’t wait until graduation to start engaging with industry, you can’t think your way to clarity when finding your place in the world, this can only be done by practical experience.

Treat the tradies with respect

Always be respectful to the traidies. As a young engineer many of the traidies that you work with will have been working in the industry for about 20 years, early in your career their experience is more reliable than your theoretical knowledge – listen to them.

Respect is currency:

(1) Treat them with respect and they will be a rich source of information, disrespect them and they will let you fail.

(2) Establish good relationships and they will keep you updated on the latest developments on site.

(3) Ask for their opinions on your designs and they will alert you to things that work in theory, but are not practical to fabricate.

(4) Earn their respect for your competence, and they will soon stop hazing you and go out of their way to help you in any way they can (as your competence makes their job easier).

It is faster and less expensive to learn from the mistakes and experience of others. And having many allies will speed the advancement of your career. Treat everyone with respect, regardless of perceived ‘rank’, you never know what you might learn from them or when you might need their help.

Your degree is merely your ticket to the starting line of an engineering degree

Completing an engineering degree is one of the hardest things you’ll ever do. It is therefore common for engineering grads to think that after those hellish four years they have earned their stripes and their right to their dream job.

Unfortunately, the world doesn’t see it that way. The degree is only an assurance to your prospective employer that you have the potential to learn the job of being an engineer. It will take the next several years of focused grinding hard work to start to become an engineer capable of taking on leadership responsibility for projects in your own right.

Don’t make the mistake of feeling cheated when your first job is an uninspiring grind. The repetition, although mind numbing at times, will refine your skills laying the foundation for you to become a safe pair of hands for your firm.

Promotion comes from making the interests of superiors reliant on your advancement

You don’t get promoted by showing up on time, working hard, and being congenial. That is all expected of you as part of your job. People don’t promote you as a reward for good behaviour, they promote you if it furthers their interest to do so.

So, as a young engineer, work hard to make the success of your superiors reliant on your career progression:

(1) Work hard to develop rare and valuable skills, during and outside work hours (e.g. courses, reading textbooks, side projects etc).

(2) Be entrepreneurial and find ways to optimise the value generated by your business unit (you don’t need a title to show leadership). The best opportunities you will have are when your colleagues realise that the current methods or systems will not deliver success. If you can chart the course they will usually follow you.

(3) Pitch new ideas to your boss on anything that will improve the bottom line (employees who can solve problems, not just report them, are a godsend to their managers).

(4) Work hard on your ability to communicate complex ideas to non-technical audiences, showing how your proposals will address their interests and concerns. This will serve you well with customers and senior decision-makers.

(5) Develop your network at all levels of the business, and outside the business. Employees that have their ‘ear to the ground’ often become valued advisers to their managers, and these networks will help you succeed as you progress and implement changes to the systems in your area.

(6) Learn how to market and bring clients in.

Remember that leadership is about service, not status. Your job is to chart the course for the success of your team, and to remove the obstacles in their path to achieving it. Demonstrating your ability to drive project success will lead to advancement – as your managers will allocate you to increasingly high-profile tasks, the tasks on which their advancement depends.

See our services page, or contact us to find out what Australaw can do for you.

Employee or Contractor – What’s in a Name?

construction-worker

The signed contract clearly states that the person you hired is an independent contractor, so that makes them an independent contractor…right? Ahh…if only it were that simple.

Establishing whether the legal relationship created under contract is that of employer/employee or principal/contractor isn’t always straightforward, and if you get it wrong it could end up costing you a lot of money.

Simply including a clause in the contract labelling a person as a contractor will not be sufficient to create that type of arrangement. If a dispute arises, a court will look beyond this label and examine the terms of the contract and the relationship as a whole.

An employer who deliberately or recklessly misrepresents an employee as an independent contractor will find themselves in hot water with the Fair Work Commission.

Additionally, a contract of employment can entitle an employee to numerous rights including:

  • Minimum wage and modern awards
  • Working conditions
  • Leave entitlements
  • Occupational health and safety protections
  • Workers Compensation
  • Superannuation contributions
  • Withholding of income tax
  • Protections against unfair dismissal
  • Reimbursement for work-related expenses; and
  • Union membership and industrial action

Failing to meet employer obligations exposes individuals and companies to a wide range of liabilities under civil and criminal law. This can all be avoided by getting the right legal advice before hiring.

Every case has its own peculiarities- see our engineering and construction page, or contact us to find out what Australaw can do for you.